An increase in the interest rate by the Bank of England always scares people until they work out exactly what affect the increase will have on their lives. The people who will suffer the most will be those people who have taken out loans that have left them financially stretched before the interest rate increase occurred. The actual amount of the increase is not as much of a problem as the psychological effects of the increase. People who can be hardest hit are those who own homes although they can sort out some of their problems by consolidating their debts. One of the problems is that the interest rate increase will affect people in a variety of different ways, not a single way.

Many people will be able to make plans to accommodate the increased interest rate on loans and mortgages, but may be unprepared for its effect on other general costs. To be hit on multiple sides with rising costs will greatly increase the pressure on those people who have loans outstanding. The burden of the loans will increase and the more stretched a person is financially before the increase, the more they will feel the effects of the increase. While the increase may be as little as a quarter of a percentage, it can result in a gain of £ 20 pounds per month or more in monthly payments on a loan of 10 000 pounds.

The additional money will have to be taken from another aspect of the household budget, which in turn can have effects on people's quality of life. Most people will deduct it from the amount of money allocated to leisure activities and non-essential aspects. This can be exacerbated by the fact that other bills may also be increased through the interest rate increase. This is coupled with the fact that council tax rates can be tied to interest rates and can increase in line with increases in the interest rates. This means that the person will have to cope with increased bills at a time when they are trying to reduce costs to pay off loans or mortgages that have been also increased.

One bill that is often linked to increased interest rates is a person's energy bill since it is the increased energy usage that has been a root cause of the latest interest rate increase. Due to the link between the increased interest rates and increased energy bills there are many people who suffer after even a small increase in interest rates. While most people will be able to weather the increase with few major problems, those people who were in financial trouble before will be the worst affected. One of the things that can prevent someone from being too badly affected is having a fixed rate loan. You can only have a fixed rate loan for a few years it can help you to sort out your financial problems without worrying that your debt is going to increase.

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Source by Juliette Van Rooyen